Where Did Our Loan Go?

Orion’s brokers are sometimes asked by their clients, “What happens to my loan?” This is another way of asking, “Which U.S. bank is the largest holder of mortgage-backed securities (MBS)?” since most home loans go into securities. As some in the industry know, MBS are a type of asset-backed security similar to a bond that is made up of a bundle of home loans bought from the banks/agencies that issued them. Investors in MBS receive periodic payments similar to bond coupon payments, based on the payments your clients make every month.

Prepare yourself for a lot of billions! MBS held by major U.S. banks have changed since the recession, with the proportion of total MBS held by the five largest U.S. banks having steadily declined since the downturn. Despite an increase in the dollar value from $393 billion in 2007 to around $690 billion currently, the share in MBS held by Bank of America, Wells Fargo, JP Morgan, Goldman Sachs, and Citigroup has gone from almost 63 percent in 2009 to less than 37 percent currently.

Bank of America holds the largest portfolio of MBS among all commercial banks in the country, with around $350 billion of these securities on its balance sheet. Bank of America’s MBS portfolio increased from around $163 billion to more than $230 billion in 2008 thanks to its acquisition of Merrill Lynch. This metric has gradually increased since then, increasing from $234 billion in 2009 to more than $340 billion last year, making up around 18 percent of the total MBS across U.S. commercial banks.

Wells Fargo, the second largest aggregator, saw its MBS value shoot up in 2008, increasing from just around $55 billion to almost $100 billion due to the bank’s acquisition of Wachovia. The figure peaked in 2016 at $178 billion before shrinking over the last couple of years down close to $160 billion. This may have to do with the Fed’s enforcement order restricting Wells Fargo’s ability to grow its balance sheet.

JPMorgan, Goldman Sachs and Citigroup seen their share of MBS decline steadily since the crisis. Bank of American now holds more than half of the total mortgage-backed securities held by the five major banks. Other banks and private issuers are making up for the decline in MBS held by the major banks as the housing market has grown at a steady pace in the U.S. And many of those loans were done by brokers through Orion Lending. Merry Christmas from everyone at Orion!

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